Question 1

If a perfectly competitive firm is currently producing where ________, then the firm will earn zero profits.

Accepted Answer

A)  P > MC and MC = ATC 
B)  P = MC and MC = ATC 
C)  P = MC and MC  ATC 
A)  P > MC and MC = ATC 
B)  P = MC and MC = ATC 
C)  P = MC and MC  ATC

Question 2

If a firm's total costs are $100 when 10 units of output are produced and $105 when 11 units of output are produced, the marginal cost of the 11th unit is

Accepted Answer

A)  $1. 
B)  $3. 
C)  $5. 
D)  $9.36. 
A)  $1. 
B)  $3. 
C)  $5. 
D)  $9.36.

Question 3

Which statement is not true regarding the total variable cost curve?

Accepted Answer

A)  It increases as output increases. 
B)  It shows the variable cost of production given current factor prices. 
C)  It starts at the origin. 
D)  It is a horizontal line. 
A)  It increases as output increases. 
B)  It shows the variable cost of production given current factor prices. 
C)  It starts at the origin. 
D)  It is a horizontal line.

Question 4

A perfectly competitive firm will earn ________ economic profits in the range of output for which the firm's price is above its minimum average total cost.

Accepted Answer

A)  positive 
B)  negative 
C)  zero 
D)  Any of the above answers could be correct. 
A)  positive 
B)  negative 
C)  zero 
D)  Any of the above answers could be correct.

Question 5

Average variable costs fall continuously as quantity of output rises.

Accepted Answer

A) True 
 B)False

Question 6

In perfect competition, the marginal revenue curve

Accepted Answer

A)  and the demand curve facing the firm are identical. 
B)  is always above the demand curve facing the firm. 
C)  is always below the demand curve facing the firm. 
D)  intersects the demand curve when marginal revenue is minimized. 
A)  and the demand curve facing the firm are identical. 
B)  is always above the demand curve facing the firm. 
C)  is always below the demand curve facing the firm. 
D)  intersects the demand curve when marginal revenue is minimized.

Question 7

The Lawn Ranger, a landscaping company, has total costs of $4,000 and total variable costs of $1,000. The Lawn Ranger's total fixed costs are

Accepted Answer

A)  $0. 
B)  $3,000. 
C)  $5,000. 
D)  indeterminate because the firm's output level is not known. 
A)  $0. 
B)  $3,000. 
C)  $5,000. 
D)  indeterminate because the firm's output level is not known.

Question 8

Free exit implies that

Accepted Answer

A)  a perfectly competitive firm can never earn a profit. 
B)  if an industry's existing firms make excessively high losses, firms are likely to exit the industry. 
C)  the government regulates the number of firms it allows in an industry. 
D)  firms will always earn below normal profit, as firms can exit the industry at any time they like. 
A)  a perfectly competitive firm can never earn a profit. 
B)  if an industry's existing firms make excessively high losses, firms are likely to exit the industry. 
C)  the government regulates the number of firms it allows in an industry. 
D)  firms will always earn below normal profit, as firms can exit the industry at any time they like.

Question 9

If a firm is producing where MR < MC

Accepted Answer

A)  the revenue gained by producing one more unit of output exceeds the cost incurred by doing so. 
B)  the revenue gained by producing one more unit of output equals the cost incurred by doing so. 
C)  the revenue gained by producing one more unit of output is less than the cost incurred by doing so. 
D)  the firm is already maximizing profits because revenue is being decreased by more than costs. 
A)  the revenue gained by producing one more unit of output exceeds the cost incurred by doing so. 
B)  the revenue gained by producing one more unit of output equals the cost incurred by doing so. 
C)  the revenue gained by producing one more unit of output is less than the cost incurred by doing so. 
D)  the firm is already maximizing profits because revenue is being decreased by more than costs.

Question 10

The ________ curve intersects the average variable cost curve at the minimum value of the average variable cost curve.

Accepted Answer

A)  total cost 
B)  marginal cost 
C)  total variable cost 
D)  average fixed cost 
A)  total cost 
B)  marginal cost 
C)  total variable cost 
D)  average fixed cost

Question 11

Refer to the information provided in Table 8.5 below to answer the question(s) that follow.
Table 8.5
 $$\begin{array} { c c c c c c c c } 
\hline \begin{array} { c } 
\text { Number of } \
\text { Swords }
\end{array} & \text { TVC } & \text { MC } & \text { AVC } & \text { TFC } & \text { TC } & \text { AFC } & \text { ATC } \
\hline 0 & & & & & 50 & \
\hline 1 & & 25 & & & & & \
\hline 2 & & & & & &&47.50 \
\hline 3 & & & 23.33 & & & \
\hline 4 & & & & & 150 & & \
\hline 5 & 135 & & & & & & \
\hline
\end{array}$$
-Refer to Table 8.5. If Phoebe produces five swords, her total costs are

Accepted Answer

A)  $160. 
B)  $180. 
C)  $185. 
D)  $200. 
A)  $160. 
B)  $180. 
C)  $185. 
D)  $200.

Question 12

The short-run is a period of less than one year.

Accepted Answer

A) True 
 B)False

Question 13

If a profit-maximizing firm is currently producing where MR = MC, it should

Accepted Answer

A)  increase output so that marginal revenue is less than marginal cost. 
B)  decrease output so that marginal revenue will be greater than marginal cost and the firm's profit will increase. 
C)  not change because it is already maximizing profit. 
D)  exit the industry. 
A)  increase output so that marginal revenue is less than marginal cost. 
B)  decrease output so that marginal revenue will be greater than marginal cost and the firm's profit will increase. 
C)  not change because it is already maximizing profit. 
D)  exit the industry.

Question 14

The long run is a period of more than one year.

Accepted Answer

A) True 
 B)False

Question 15

TC -TVC =

Accepted Answer

A)  TFC. 
B)  ATC. 
C)  AVC. 
D)  AFC. 
A)  TFC. 
B)  ATC. 
C)  AVC. 
D)  AFC.

Question 16

Refer to the short-run information provided in Figure 8.5 below to answer the question(s) that follow
 
Figure 8.5
-Refer to Figure 8.4. Micro Oven's average fixed costs of producing six units of output are

Accepted Answer

A)  $41.66. 
B)  $50. 
C)  $100. 
D)  indeterminate from this information. 
A)  $41.66. 
B)  $50. 
C)  $100. 
D)  indeterminate from this information.

Question 17

Bubba's Bait and Tackle is maximizing profits, so it must be producing where

Accepted Answer

A) MR > MC. B) MR < MC. C) MR = MC. D) MR = 0. A) MR > MC. B) MR < MC. C) MR = MC. D) MR = 0.

Question 18

Refer to the short-run information provided in Figure 8.5 below to answer the question(s) that follow
 
Figure 8.5
-Refer to Figure 8.5. The marginal cost of the seventh drone is

Accepted Answer

A)  $2.86. 
B)  $3.33. 
C)  $20. 
D)  indeterminate from this information. 
A)  $2.86. 
B)  $3.33. 
C)  $20. 
D)  indeterminate from this information.

Question 19

Assume the wool industry is perfectly competitive. Why is it difficult for a wool producer to make excess profits in the long run?

Accepted Answer

A)  the fact that wool producers are ʺprice takersʺ 
B)  the assumption that wool producers in the industry do not ʺdifferentiateʺ their products 
C)  the fact that the demand curve facing each wool producer is perfectly elastic 
D)  There is free entry into the wool industry. 
A)  the fact that wool producers are ʺprice takersʺ 
B)  the assumption that wool producers in the industry do not ʺdifferentiateʺ their products 
C)  the fact that the demand curve facing each wool producer is perfectly elastic 
D)  There is free entry into the wool industry.

Question 20

The increase in total cost resulting from producing one more unit of output is called

Accepted Answer

A)  marginal cost. 
B)  average total cost. 
C)  variable cost. 
D)  opportunity cost. 
A)  marginal cost. 
B)  average total cost. 
C)  variable cost. 
D)  opportunity cost.

Exam 8: Short-Run Costs and Output Decisions

If a perfectly competitive firm is currently producing where ________, then the firm will earn zero profits.

If a firm's total costs are $100 when 10 units of output are produced and $105 when 11 units of output are produced, the marginal cost of the 11th unit is

Which statement is not true regarding the total variable cost curve?

A perfectly competitive firm will earn ________ economic profits in the range of output for which the firm's price is above its minimum average total cost.

Average variable costs fall continuously as quantity of output rises.

In perfect competition, the marginal revenue curve

The Lawn Ranger, a landscaping company, has total costs of $4,000 and total variable costs of $1,000. The Lawn Ranger's total fixed costs are

Free exit implies that

If a firm is producing where MR < MC

The ________ curve intersects the average variable cost curve at the minimum value of the average variable cost curve.

Refer to the information provided in Table 8.5 below to answer the question(s) that follow. Table 8.5 Number of Swords TVC MC AVC TFC TC AFC ATC 0 50 1 25 2 47.50 3 23.33 4 150 5 135 -Refer to Table 8.5. If Phoebe produces five swords, her total costs are

The short-run is a period of less than one year.

If a profit-maximizing firm is currently producing where MR = MC, it should

The long run is a period of more than one year.

TC -TVC =

Refer to the short-run information provided in Figure 8.5 below to answer the question(s) that follow Figure 8.5 -Refer to Figure 8.4. Micro Oven's average fixed costs of producing six units of output are

Bubba's Bait and Tackle is maximizing profits, so it must be producing where

Refer to the short-run information provided in Figure 8.5 below to answer the question(s) that follow Figure 8.5 -Refer to Figure 8.5. The marginal cost of the seventh drone is

Assume the wool industry is perfectly competitive. Why is it difficult for a wool producer to make excess profits in the long run?

The increase in total cost resulting from producing one more unit of output is called

The Scope and Method of Economics

The Economic Problem: Scarcity and Choice

Demand, Supply, and Market Equilibrium

Demand and Supply Applications

Elasticity

Household Behavior and Consumer Choice

The Production Process: the Behavior of Profit-Maximizing Firms

Long-Run Costs and Output Decisions

Input Demand: the Labor and Land Markets

Input Demand: the Capital Market and the Investment Decision

General Equilibrium and the Efficiency of Perfect Competition

Monopoly and Antitrust Policy

Oligopoly

Monopolistic Competition

Externalities, Public Goods, and Common Resources

Uncertainty and Asymmetric Information

Income Distribution and Poverty

Public Finance: the Economics of Taxation

International Trade, Comparative Advantage, and Protectionism

Economic Growth in Developing Economies

Critical Thinking About Research

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